There is no doubt we are living in difficult times. Within the last twenty years, the Dotcom bubble has burst, the financial markets crashed, a global pandemic wiped billions off share prices, and the Russian war is pushing inflation upward.
In short, you’re not earning more but the cost of everything is rising. Just take a look at what your energy bills will doing, before the Russian war started, it’s only getting worse.
The Combined Threats On Your Earnings
You work to earn money. It pays the bills, perhaps allows you to enjoy life a little, and even save for the future. Right now your money is threatened.
All the aforementioned issues cause market instability, as long as the war continues the instability will. Alongside this, the end of the war will not change the pressure on energy prices and the cost of food is likely to increase at least in the short term. Ukraine supplies a large percentage of crops, creating essential foods, it will take time for this to return to ‘normal’.
Alongside this, national insurance is rising, all of it takes a toll on your earnings, decreasing what you can save and the importance of protecting it.
Where The Individual Savings Account Fits In
Before you discover how an Individual Savings Account (ISA) can help you protect your money, it’s important to realize there are many providers. You need to find an ISA you can trust to ensure your money is as safe as it should be.
The rulers surrounding ISAs are well-defined. Every person in the UK can invest up to £20,000 a year into an ISA. The money in the ISA will earn interest and there are several ways in which you can release the capital.
Critically, any returns you get, any interest you receive, and any withdrawals you make, are tax-free. The money is yours.
It doesn’t matter if you have a cash ISA where you earn interest or a stocks and shares ISA where you earn dividends. All money earned is tax-free. This will help to maximize your spending power in retirement.
The Level Of Contributions And Type Of ISA Matters
To really ensure you beat the volatility of the markets you need to pay as much as you can into the ISA. The greater the amount you pay in the more interest you generate and the better protected your funds will be against inflation.
However, if inflation is higher than the current interest rate, you need to be aware that the real-world value of your funds will be less, even after years of saving.
For example, if inflation is at 5% the item you buy today for £1 will be £1.05. Should your interest rate be 2% then your £1 saved is only worth, including interest, £1.02. In other words, despite saving you are still worse off.
That’s why you need to look at investment Individual Savings Accounts, (stocks and shares ISA). These ISAs invest your funds in the stock market to achieve higher returns, helping you to protect your money and buying power from inflation.
Of course, you need to invest wisely, investments can go down as well as up. That’s why it’s essential to choose an ISA provider you can trust.
